Ontario's Bill 23 could cost city of Ottawa $60M a year, treasurer says

City of Ottawa staff are warning the Ontario government's proposed changes to development charges could cost $60 million a year, leaving taxpayers on the hook to fund future growth in the capital.

The city continues to analyze the potential impacts of Bill 23, the "More Homes Built Faster Act", which aims to build 1.5 million homes by 2031. The Ford government's legislation proposes changes to several Acts and regulations including the Development Charges Act, Planning Act, Municipal Act, and others.

Development charges are one-time fees collected from residential and non-residential land developers that pay for roads, transit, libraries and other city services in neighbourhoods. Under the proposed legislation, Ontario would reduce development charges by up to 25 per cent for family-sized rental units and scrap development charges for affordable housing, non-profit housing and "inclusionary zoning units."

In a memo to council, City Treasurer Wendy Stephanson says the financial impact on development charges could be well over $60 million a year, or approximately 25 per cent of development charge revenues starting in 2025.

"Meaning conclusively that growth will not pay for growth," Stephanson told council Friday afternoon.

Stephanson says there are "several benefits" in applying development charges to projects, including the "timely and orderly expansion of required infrastructure services", "the avoidance of low service levels" and "greater overall acceptance by existing residents of property development and the growth it facilitates."

The treasurer outlined the impacts of various amendments proposed to the Development Charges Act under Bill 23.

1. Phase-in of annual development charge collections

Stephanson says the five year phase-in of development charge rates in new bylaws will cost $26 million a year or $130 million over five years.

"Mandatory reductions in Development Charge revenues over five years will create an infrastructure funding gap between the collection of development charges and the financing of the required growth-related capital projects needed to proceed with new development," Stephanson said.

2. Removal of Affordable Housing as an eligible service category

The city estimates removing affordable housing development charges will impact revenue by approximately $2 million per year or $10 million over $10 years, according to the memo, stating the estimate is based on actual growth-related funding over the last five years.

Stephanson says the city would no longer be able to use development charges to contribute towards the growth-related capital costs required to fund various affordable housing initiatives in the Official Plan and Long-Range Financial Plan.

3. Removal of land as a recoverable cost for certain service categories

Under Bill 23, the cost to acquire land for specific growth-related service categories can be exempted as an eligible expense if prescribed, Stephanson said.

"The removal of land will result in the use of other sources of funding and will negatively impact the City’s ability to pay developers for this component of capital projects needed for the provision of expanded growth-related infrastructure for such items as new arterial roads, park and ride facilities and public transit corridors."

Staff say removing land as a recoverable cost for certain service categories would create a $5.2 million annual impact or $52 million over 10 years.

4. Development charge background studies

The proposed amendment of no longer funding development charge background studies would create an annual pressure of $2 million a year, and exemptions of housing services from development charge recovery will result in a loss of $1 million in capital funding a year.

Stephanson says the financial impacts of proposed changes requiring municipalities to provide financial incentives through development charges and parkland exemptions for affordable rental and ownership housing, inclusionary zoning units and discounts for market rental units still need to be analyzed.

In the memo to council, Stephanson says the amendments to Bill 23 will "disproportionately impact the increase in revenue required to service land in advance of future residential development to 2046."

The treasurer notes a 2021 analysis identified a shortfall of $465 per capita a year to pay for operational and lifecycle costs within the lower-density urban greenfield growth category.

"In the absence of equivalent and consistent funding by the Province, the options would be to delay, reduce service, or seek other funding sources," Stephanson said.

"The only readily identifiable source to make up the significant funding shortfall are existing taxpayers, who would be required to fund the studies and capital investments necessary to deliver services, amenities and infrastructure needed to support growth."